Alibaba’s 10-Year Strategy
Alibaba has three key priorities for the next decade:
- Globalization – helping SMEs expand beyond their borders via e-commerce, internet financing, data, marketing and logistics
- Rural Development – closing the digital divide and alleviating poverty through economic opportunity
- Data Technology – production, innovation and social development through cloud computing and big data services
Focusing on the second priority above: roughly half of China’s population – over 600 million people – live in rural areas. To gain insight into Alibaba’s mission for rural development, the AGLA team spent the past week visiting Rural Taobao service centers throughout China.
AGLA visited rural villages across eight provinces in China
What is Rural Taobao?
Rural Taobao is an Alibaba initiative to raise living standards in China’s countryside through e-commerce. Through the internet, rural residents are gaining access to a broader variety of goods and services. However, access is only part of the solution- the other side of this equation is helping farmers sell directly to urban residents.
The Rural Taobao homepage
At the end of 2016, Alibaba had more than 16,000 Rural Taobao service centers in villages across the country, and plans to reach 100,000 (which is one sixth of the total villages in China) over the next 3-5 years. Supporting this plan is a three-pronged strategy:
- Cooperating with the local government to receive support in the form of policy updates, shipping subsidies and office space.
- Providing logistics and information infrastructure through the Alibaba ecosystem (i.e. Taobao, Cainiao, AliCloud and AliPay).
- Attracting local talent to serve as Rural Taobao service center partners.
AGLA’s Visit to Rural China
The AGLA team split into eight groups of four people each and scattered across the country. I was sent to Inner Mongolia, a province of 25 million people situated on China’s northern border with Mongolia. Due to its location, the region has a rich history that combines both Mongol and Chinese elements. It is famous for its grasslands, lamb and the Great Wall.
Inner Mongolia highlighted in red
Our starting point for the trip was Hohhot – a three-million-person city and the capital of Inner Mongolia. From there we drove one hour south to the county-level town of Horinger (population: 200,000). Horinger – also home to Mengniu, one of the largest dairy producers in the world – served as our launch point to visit five villages (population: ~1,000 per village). Most of these villagers work as farmers, and the average family income is 6,000-10,000 RMB (900-1,500 USD) per year.
Over the following two days, we met with villagers, Rural Taobao service center managers, government officials and local businesspeople to gain a better understanding of their daily life and their exposure to e-commerce. We also spent time with young students and the elderly, partially as community service and partially to gain a fuller picture of village life.
Rural Toabao – Current Operations
The Rural Taobao business model functions similarly across all regions, with slight differences depending on local need. Using Inner Mongolia as an example, the county-level distribution center in Horinger services roughly 50 villages, receiving and shipping approximately 200 packages per day. Logistics are still quite expensive, but prices continue to decrease. This is critical, as the government plans to discontinue its shipping subsidies in 2019.
The Horinger county-level Rural Taobao distribution center
The typical Rural Taobao discovery/purchase/delivery journey is outlined in the following process flow:
- If the villager has a smartphone, he/she can browse and order through cun.taobao.com. Otherwise, the cun xiao’er (definition below) assists the villager to browse and purchase through the desktop web browser at the village service center.
- Once the order is placed, the parcel is shipped to the Rural Taobao county distribution center. This typically takes 3-4 days.
- Once the parcel arrives at the county distribution center, it is sorted by village and dispatched the following morning.
- Once the parcel arrives to the village service center, the villager either comes to the service center to receive it or the cun xiao’er provides last-mile delivery.
Rural Taobao Stakeholders
Provincial Managers are the Alibaba employees responsible for launching and managing operations at the provincial level (i.e. Inner Mongolia). They are Rural Taobao evangelists, spending much of their time building relationships with local leaders and breaking down barriers for the xian xiao’ers.
Pengge – provincial manager for Inner Mongolia and Xinjiang
Xian Xiao’ers (县小二) are the county-level (i.e. Horinger) Alibaba employees responsible for managing a number of village-level Rural Taobao service centers. Currently, each county office links to 50 village service centers (on average). The xian xiao’ers are Alibaba’s front line for rural development, and spend much of their time on the road visiting the villages, opening new service centers and assisting with day-to-day operations.
The Horing The Horinger Xian
Cun Xiao’ers (村小二) are the village-level contractors that operate the Rural Taobao service centers. They are often locals from the village, and are responsible for educating other villagers on e-commerce, assisting villagers with ordering, maintaining the storefront and last-mile delivery. Cun xiao’ers are paid a commission for every product sold.
A cun xiao’er who recently opened a new Rural Taobao service center
Villagers are the end consumers. Most have limited (if any) experience with the internet. In fact, in many cases the only computer in the village is located in the Rural Taobao service center.
A group of villagers outside of a Rural Taobao service center.
The Government provides the office space for Rural Taobao service centers, infrastructure investment and policy updates. In Inner Mongolia, the government also subsidizes shipping (together with Alibaba) such that villagers can receive goods at the same net price as in cities.
Brian Wong and the Horinger government e-commerce representative discuss goals for rural e-commerce
Challenges for Rural E-Commerce
- Education and Awareness
When a new Rural Taobao service center is launched, many villagers had never previously used the internet, let alone made an online purchase. Even if the villagers had previous exposure to the internet, the prospect of making an online purchase is foreign and scary. The trust issues and fear around this are reminiscent of online shopping during the 90s in the U.S.
The biggest challenge the cun xiao’ers face is educating villagers on the benefits of e-commerce. They have to teach the villagers how to navigate a website and how to compare products, and convince them that their parcel will arrive. Overall, educating villagers to think about e-commerce when they want to make a purchase is a slow, painful process.
A barrier to e-commerce in rural areas is poor infrastructure. Shipping is expensive to the point where online shopping is prohibitive to villagers. Improved roads and increased volume has decreased the cost, but it is still considerably more expensive to ship a parcel to a village than to a city. The government and Alibaba currently fully subsidize shipping to villages in Inner Mongolia, but for the Rural Taobao model to be sustainable these subsidies must eventually vanish.
- Attracting and Retaining Talent
Perhaps the largest issue facing villages is the so-called “brain drain” educated villagers leaving and never coming back. Further, due to a lack of opportunities in the villages, working age villagers migrate to urban areas in search of work. This creates a devastating social issue where the only people in the village are children and the elderly, and parents only see their children once a year during Chinese New Year.
The ultimate key to rural development is providing opportunities in the villages. E-commerce is one solution to this, where villagers can sell their wares online or even create new online industries (see “Taobao Villages” for examples). In villages in Inner Mongolia, the farmers sit idle during winter, and this human capital could be applied if other opportunities became available.
Reflections & Lessons Learned
Spending time in Inner Mongolia was an eye-opening experience that provided a real-life look into rural China. I previously only had a theoretical understanding of rural villages in China, but this gave tangible insight into living conditions, education and opportunity available in the villages.
Still, spending four days in the villages is easy. The hard part is continuing to put ourselves in the shoes of the villagers and pushing this effort forward. And taking this one step further, how can we replicate this model in other countries?
Overall, I am incredibly humbled and impressed by the xian xiao’ers and the cun xiao’ers. These people are so driven by their mission that everything else seems to come secondary. Pengge, for example, only sees his wife and child once a month because he is so intent on improving living conditions in Xinjiang and Inner Mongolia. He himself came from a village in Fujian, and personally relates to the mission. The xian xiao’ers exhibit similar qualities. Almost all of them come from the county they work in and want to bring prosperity hometowns.
What excited me the most, though, was meeting the cun xiao’ers. The cun xiao’ers we met were often those who had the capability to succeed but never had an opportunity to do so. One, a wheelchair-bound man, had been unemployed due to his condition. Rural Taobao hired him as a cun xiao’er a few months ago and he is now thriving in his role – not just because he is capable and not just because he is thankful for the opportunity, but also because he wants to see his village succeed. These selfless qualities are extremely difficult to screen for… and they are key to the future success of rural e-commerce.
“It’s a tough job and the salary is not high. But helping transform villages and make them better places is a reward money won’t get you.” -Yao Bi Fan (姚碧帆), Rural Taobao employee
Matt Shofnos is a former teacher and consultant who is passionate about building bridges between dissimilar groups. In his spare time, Matt enjoys travel blogging and injecting humor into ordinary things.